Homeowners Have Rights Even Following Defaults

April 18, 1993|By J. Linn Allen.

Many people go into panic or paralysis at the prospect of defaulting on a mortgage, but it's not necessarily the end of the world. It may or may not be the end of your home, and you should know what your prospects and options are.

Some key points of information are offered by Loop attorney Harold Levine, author of a handbook for lawyers working with residential foreclosures called "A Guide for the Dispossessed," and Naperville attorney Steven Lindberg, a foreclosure specialist. They note:

- Lenders vary on foreclosure policies, but usually will foreclose after a delinquency period of three months. Some may wait up to five months.

- If you get a delinquency notice, a foreclosure suit is not far behind. You should contact your lender immediately to discuss your problems.

A lender is not required to give notice before filing a foreclosure suit unless your mortgage specifically provides for it, though some lenders do it as a matter of policy. Once the suit has been filed, you will be served with a summons.

- You have at least 90 days from receiving the foreclosure summons to bring the loan current, which means paying off the arrears plus court costs and the lender's legal fees.

With some loans, the lender does not have to accept delinquent installments after 90 days and can call in the whole loan.

But with VA and FHA loans, and those sold to Fannie Mae or Freddie Mac, the government-sponsored mortgage finance companies, the loan can be paid off at any time before a foreclosure judgment is entered by the court.

- For a period after the foreclosure judgment is entered, you can pay off the loan by selling the home yourself, as long as the price equals or exceeds the mortgage balance plus the additional costs. That period is either seven months from the day of service of the foreclosure summons or three months after the judgment is entered, whichever is later.

If you have equity in your home, you will want to sell it before the court-ordered sheriff's sale takes place in order to get something from the transaction. A sheriff's sale rarely will produce any more than what's owed to the mortgage company, and in that case, you will get nothing.

- Filing for bankruptcy is the main defense of many borrowers who want to save their homes. In Chapter 13 bankruptcy, the type usually filed in such cases, you must have the ability to pay off your debts within a reasonable amount of time, usually 24 months.

In a few cases, Chapter 7 bankruptcy, which is a liquidation of debts, may save the home. But this type of bankruptcy is tricky, and you should consult a lawyer experienced in the field before proceeding with it.

- In an uncontested action, it usually takes eight to 12 months from the time the foreclosure is filed until a sheriff's sale of the property. If the debtor files for bankruptcy, the period before sale could stretch out a good deal longer.

- The homeowner is required to vacate the property 30 days after the sale is confirmed by the court.